Incentives and Security in Electricity Distribution Networks

  • Saurabh Amin
  • Galina A. Schwartz
  • Hamidou Tembine
Part of the Lecture Notes in Computer Science book series (LNCS, volume 7638)


We study incentive problems in electricity distribution when customer energy usage is imperfectly observable by the utility. Thus, we assume that each customer has private information about the amount of his consumed energy. Imperfect observability of individual user demand results is non-technical energy losses. In developing countries, these losses amount to 20 − 30% per year, and are largely attributed to theft by residential customers. Reducing these losses will allow a marked increase in efficiency of the electricity distribution. Usage of smart energy management devices enables new functionalities and brings the potential for such increased efficiency. However, employing smart energy management devices also entails a new set of problems. Typically, such devices are commercially produced, and employ off-the-shelf information technology (IT) solutions with inherent security vulnerabilities. Thus, due to technology limitations and cost constraints, smart devices are vulnerable to tampering and may enable systemic energy theft, threatening to reduce, or even erase the gains in efficiency. In this paper, we address incentives of utility company to combat theft (i.e., non-technical losses), when utility is subject to rate (tariff) regulation. From our analysis, such regulated utilities invest less than socially optimal in theft reduction. We suggest that regulators should include explicit targets for the allowable losses to remedy the problem of incentive misalignment.


Electricity Distribution Distribution Sector Distribution Utility Price Schedule Utility Operator 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. 1.
    Antmann, P.: Reducing technical and non-technical losses in the power sector. Technical report, World Bank Group Energy Sector (2009)Google Scholar
  2. 2.
    Anderson, R., Fuloria, S.: Who controls the off switch? In: 2010 First IEEE International Conference on Smart Grid Communications (SmartGridComm), pp. 96–101 (October 2010)Google Scholar
  3. 3.
    Jeff Smith, N.G.: Smart meters take bite out of electricity theft (September 2011),
  4. 4.
    Cleveland, F.M.: Cyber security issues for advanced metering infrastructure (ami). In: 2008 IEEE Power and Energy Society General Meeting-Conversion and Delivery of Electrical Energy in the 21st Century, pp. 1–5. IEEE (2008)Google Scholar
  5. 5.
    Smith, T.B.: Electricity theft: a comparative analysis. Energy Policy 32(18), 2067–2076 (2004)CrossRefGoogle Scholar
  6. 6.
    McLaughlin, S., Podkuiko, D., McDaniel, P.: Energy Theft in the Advanced Metering Infrastructure. In: Rome, E., Bloomfield, R. (eds.) CRITIS 2009. LNCS, vol. 6027, pp. 176–187. Springer, Heidelberg (2010)CrossRefGoogle Scholar
  7. 7.
    Anderson, R., Fuloria, S.: On the security economics of electricity metering. In: The Ninth Workshop on the Economics of Information Security, Citeseer (2010)Google Scholar
  8. 8.
    Kassakian, J.G., Schmalensee, R.: The future of electric grid: An interdisciplinary MIT study. Technical report, Massachusetts Institute of Technology (2011)Google Scholar
  9. 9.
    Sam Dolnick, A.P.: Indian officials wage war on energy theft (July 2009),
  10. 10.
    PPPIRC: Theft / non-technical losses (water and electricity) (2011),
  11. 11.
    Victor, D.G., Heller, T.C. (eds.): The Political Economy of Power Sector Reform. Cambridge University Press (2009)Google Scholar
  12. 12.
    Joskow, P.L.: Incentive regulation in theory and practice: Electricity distribution and transmission networks. In: Economic Regulation and Its Reform: What Have We Learned? NBER Chapters. National Bureau of Economic Research, Inc. (Julio Dic 2011)Google Scholar
  13. 13.
    Vogelsang, I.: Electricity transmission pricing and performance-based regulation. CESifo Working Paper Series 1474, CESifo Group Munich (2005)Google Scholar
  14. 14.
    Laffont, J., Martimort, D.: The theory of incentives: the principal-agent model. Princeton Univ. Pr. (2002)Google Scholar
  15. 15.
    Bolton, P., Dewatripont, M.: Contract Theory, vol. 1. The MIT Press (2005)Google Scholar
  16. 16.
    Armstrong, M., Sappington, D.E.: Recent Developments in the Theory of Regulation. Handbook of Industrial Organization, vol. 3, pp. 1557–1700. Elsevier (2007)Google Scholar
  17. 17.
    Laffont, J.J., Tirole, J.: A Theory of Incentives in Procurement and Regulation, 1st edn., vol. 1. The MIT Press (1993)Google Scholar
  18. 18.
    Amrstong, M., Cowan, S., Vickers, J.: Nonlinear pricing and price cap regulation. Journal of Public Economics 58(1), 33–55 (1995)CrossRefGoogle Scholar
  19. 19.
    Tirole, J.: A Theory of Industrial Organizaton. The MIT Press (1988)Google Scholar
  20. 20.
    Ho, Y.C., Luh, P., Muralidharan, R.: Information structure, stackelberg games, and incentive controllability. IEEE Transactions on Automatic Control 26(2), 454–460 (1981)MathSciNetzbMATHCrossRefGoogle Scholar
  21. 21.
    Ho, Y.C., Luh, P.B., Olsder, G.J.: A control-theoretic view on incentives. Automatica 18(2), 167–179 (1982)MathSciNetzbMATHCrossRefGoogle Scholar
  22. 22.
    Shen, H., Basar, T.: Optimal nonlinear pricing for a monopolistic network service provider with complete and incomplete information. IEEE Journal on Selected Areas in Communications 25(6), 1216–1223 (2007)CrossRefGoogle Scholar
  23. 23.
    Armstrong, M., Vickers, J.: Welfare effects of price discrimination by a regulated monopolist. RAND Journal of Economics 22(4), 571–581 (1991)CrossRefGoogle Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2012

Authors and Affiliations

  • Saurabh Amin
    • 1
  • Galina A. Schwartz
    • 2
  • Hamidou Tembine
    • 3
  1. 1.Department of CEEMassachusetts Institute of TechnologyCambridgeUSA
  2. 2.Department of EECSUniversity of California at BerkeleyBerkeleyUSA
  3. 3.Département de TélécommunicationsÉcole Supérieure d’ÉlectricitéFrance

Personalised recommendations